SECTOR WATCH
Srinath Manda Programme Manager – Transportation & Logistics Practice, South Asia, ME & North Africa, Frost & Sullivan
As a primary measure to reduce the complexity and improve efficiency of the food value chain in India, the manufacturers should rework on their supply chain model to reduce the number of middlemen in the system. Sullivan. Hence, lack of such specialised transportation and warehousing resources is a major challenge for the F&B industry. “As a primary measure to reduce the complexity and improve efficiency of the food value chain in India, the manufacturers should rework on their supply chain model to reduce the number of middlemen in the system,” he opines. In addition, they should also rework on their procurement patterns, manufacturing & warehousing locations, and transportation practices to achieve rapid demand-supply balance attuned with consumption side of the market. It has been seen that logistics and transportation cost in India is high as compared to developed countries. On account of poor quality of infrastructure and inadequate services, the cost of logistics in India is steep. “In fact, the annual logistics cost in India is valued at ` 6,750 billion ($ 135 billion) and is growing at 810 per cent annually. The logistics cost by value accounts for about 13 per cent of India’s GDP – much higher as compared to countries like the US (9 per cent), Europe (10 per cent) and Japan (11 per cent). As a result, manufacturers have to bear the cost, which reduces their margins or the cost is sometimes passed on to consumers,” points out Narayanan. Further, unlike in developed nations, Indian retailers do not have efficient
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control over the food supply chain. For instance, in advanced countries, large retailers are the channel masters of food supply chain, taking over from the food manufacturers. “In India, with limited superstores, no economies of scale, too many intermediaries, there is no real channel master managing the demandsupply situation,” laments Narayanan.
Modern retail: Making its impact The growth of organised retail sector in the country has brought in the need for faster replenishment at stores. The Indian organised retail sector is synonymous with retail chains having large number of stores and hypermarts with huge sales volume. Hence, it calls for agile supply chains connecting several sourcing locations across the country, with various destination points. A traditional retail market-oriented distribution chain of F&B companies relies on middlemen like distributors and stockists for physical movement of goods. However, the organised retail sector participants hold F&B manufacturers responsible for ensuring regular and timely delivery of goods directly at their stores or at the retail entity’s own warehousing facility. Further, in some cases pertaining to the pack sizes, packing and pricing have to be customised to suit a particular retail chain’s needs. “This adds to higher burden on logistics and supply chain activity of F&B companies. To meet the stringent quantity orders and dynamic delivery timelines of organised retail, F&B companies need to engage professional logistics and supply chain service providers, who have the expertise in supply chain planning and management of the execution with a scientific approach,” exhorts Manda. The companies also need to streamline & standardise their procurement, materials management and production functions to meet the regular stream of orders from the organised retail clients. “The changes in lifestyle and retail revolution have resulted in significantly high levels of alternative options for
Modern Food Processing | April 2011
end-consumers, thereby leading to low brand loyalty, especially in case of food & beverages. Gone are the days when consumers waited for days to buy their preferred branded products (eg, oil, tea & coffee, and nutritional foods among others),” says Manda. Hence, continuous availability of products in all retail outlets has become extremely important for F&B manufacturers. And, any failing (or being complacent) to match the consumer purchase & demand volumes from even remote parts of the country could result in significant loss in sales. In addition, competitive pricing has gained importance in case of similar products eroding the scale of profits, as enjoyed earlier. Sanjiv Mediratta, Executive VP, Innovation & Supply Chain, Indian Hospitality Corporation, says, “Front-end is moving on a faster pace than back-end, which include logistics, resulting in demand-supply gap that lead to high cost and non-availability of timely logistics support. Non-perishable replenishment is faster in retail outlets, which is not the case with chilled, fresh or frozen food items. This is purely due to poor and insufficient logistics infrastructure in the country,” he says. Hence, only those companies that can efficiently manage their supply chain function and attain the lowest costs of manufacturing & distribution
Sanjiv Mediratta Executive VP, Innovation & Supply Chain, Indian Hospitality Corporation
Front-end is moving on a faster pace than back-end, which include logistics, resulting in demand-supply gap that lead to high cost and non-availability of timely logistics support. Nonperishable replenishment is faster in retail outlets, which is not the case with chilled, fresh or frozen food items.